The segregated bank account: a welcome option for Dutch financial institutions to meet asset segregation requirements
In the legislative bill Financial Markets (Amendment) Act 2022 (hereafter “Bill”, which can be found here) the concept of a segregated bank account is introduced for various financial institutions in order to meet market needs. Both the ‘Dutch Authority for the Financial Markets’ (hereafter “AFM”) and the ‘Dutch Central Bank’ (hereafter “DNB”) have repeatedly advocated for the introduction of a segregated bank account which was also a wish from market participants. Dutch financial institutions now often make use of a customer’s account foundation (stichting derdengelden) to meet asset segregation requirements. However, this foundation is an unknown phenomenon abroad, making the settlement of cross border transactions more difficult. This is due to the fact that foreign parties (amongst others) fear that with a payment to a party other than the financial institution (e.g. the foundation), there will still be a payment obligation towards the financial institution as the payment would not consist of a valid payment (bevrijdende betaling). Furthermore, for Dutch financial institutions establishing and maintaining a customer’s account foundation is resource-intensive and costly. The option to make use of a segregated bank account is therefore a welcome possibility for Dutch financial institutions in order to secure customers’ funds to comply with the regulations of asset segregation as laid down in the Dutch Financial Supervision Act (hereafter “FSA”).
The possibility to make use of a segregated bank account to secure customer’s funds is introduced for payment service providers, electronic money institutions, settlement agents and investment firms.[1] This concept is in line with existing segregation regimes under Dutch financial law. According to the Bill the segregated bank account should be held in the financial institution’s own name (the account holder), whereby the reference name of the account indicates that the account holder holds the account in its own name for one or more third parties (for example clients), stating the capacity of the account holder. The funds on this segregated bank account will form a segregated pool for the sole purpose of fulfilling the claims of the relevant third parties for whom the funds on the segregated bank account are deposited and, the bank at which the segregated bank account is held, to the extent such claims are related to the management of the account and insofar those claims relate to the entrustment of the funds to the financial institution. In the event of a bankruptcy within the financial institution, the trustee must cooperate with the position of the beneficiaries to the segregated third party money, which also means that other creditors cannot take recourse on the balance of the segregated bank account.
The requirements to make use of a segregated account are (amongst others) (i) the bank account should be held with a bank[2] (with a banking license) having its registered office in the Netherlands and (ii) the financial institution shall ensure adequate administration of the segregated assets. The FSA provides for the possibility to provide regulation in relation to the set-up, administration and management of the account. This regulation is expected to be inserted in the Decree on Prudential Rules (Besluit prudentiële regels Wft) and Decree on Rules of Conduct Supervision (Besluit gedragstoezicht financiële ondernemingen Wft).
The option to make use of a segregated bank account offers an alternative to the existing regulations in the FSA on the securing of funds held by financial institutions. Settlement agents, payment service providers, electronic money institutions and investment firms can therefore continue to use the already existing methods of segregating assets, but with the adoption of the Bill can now also choose for the concept of a segregated bank account. Considering this will promote cross-sectoral uniformity of financial regulation with regard to the safeguarding of customers’ funds, which is a promising and welcome development.
The Bill has been published in the Official Gazette on 27 May 2022 and will enter into force at a time to be determined by Royal Decree.
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[1] For payment service providers and electronic money institutions the possibility to make use of a segregated bank account is implemented under article 3:29aa FSA. For settlement agents this possibility is introduced with article 3:29d FSA and for investment firms under article 4:87aa FSA.
[2] Note that for settlement agents the bank account should be held by DNB.
